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Housing Market Activity Will Experience Double Digit Growth in the Next Three Years, Bringing Transactions Back Above One Million by 2016

“The fixation with house prices as an indicator of housing market recovery is misplaced. Transaction levels are a far superior indicator of housing market health. A liquid and active market is the key to avoiding volatility and to ensuring a stable and sustainable housing market in the UK” - Fionnuala Earley, Research Director at Hamptons International in Hamptons International’s 2014 Housing Market Forecast

Transactions will grow year on year for the next three years, will break the one million mark in 2016 and will grow by 50 per cent between now and 2018

The uplift in activity is due to improved confidence built on economic recovery and Government stimuli such as Help to Buy and Funding for Lending

House prices in England and Wales will increase by 6 per cent in 2014 and by 24 per cent in the next five years

House prices in Central London will grow most strongly in 2014 at 8 per cent and by 32 per cent over five years

House price growth will slow in Prime Central London (PCL) to 3% in 2014 but extreme supply shortages mean that over the next five years PCL will still see 20 per cent growth

Property transactions, the most accurate indicator of the strength of the housing market, will break the one million mark in 2016, according to a new housing market forecast report from leading residential property services company, Hamptons International. This growth in transactions will pave the way to a healthier property market.

The housing market forecast report, which predicts transactions and house prices for the next five years, is based on national economic and house price data and provides a national view.

The report emphasises the importance of property transactions as a more accurate indicator of the health of the property market than price growth. It highlights that while we have been operating in a half-market – with activity at just over half of 2008 levels - transactions are on the increase and will continue to grow due to economic recovery, a return of confidence in the market and Government stimuli such as Funding for Lending and Help to Buy. The new build sector will also support transaction levels but with only about 10 per cent of transactions coming from new build completions, returning sellers will be the most important driver.

Fionnuala Earley, Research Director at Hamptons International, commented: “Concentrating on house prices alone gives a misguided picture of housing market health. A liquid and active market is the key to ensuring a stable and sustainable housing market in the UK.

“Transaction levels in the UK are now rising and we expect double digit growth to continue as better economic conditions, improved confidence and mortgage availability allow people to buy and move house more easily again. But it will take a long time before they return to levels we became accustomed to five years ago. Households are still stretched and as prices increase, affordability will bite too.”

Pent-up demand, Government support and improved economic conditions will lead to widespread house price growth next year and for the next five years, according to Hamptons International’s report. London, the only part of the UK where prices are now above their pre-recession peak, will continue to outperform other regions. Central London, where transactions are highest but supply is an issue, will see the largest price growth. By contrast, PCL growth will underperform England and Wales for the first time since 2005.

Fionnuala Earley continued: “House prices in London and the South of England will continue to outperform the average for England and Wales, while Northern parts of the country will see a more subdued revival.

“Market dynamics which shift buyers from higher to lower priced areas will boost prices in the Central London market and also the South as families migrate out of the Capital. In the Prime Central London market we expect demand to soften as investors search for better yielding assets elsewhere.”

House Price Forecasts

2012

2013

2014

2015

2016

2017

2018

England & Wales

(000s)

0.8

5.0

6.0

5.5

3.0

4.0

4.0

Greater London

5.9

9.0

7.0

6.0

4.0

4.5

4.5

PCL

13.7

10

3.0

2.5

3.5

4.5

5.5

Central London

8.3

11.5

8.0

7.5

4.5

4.0

4.0

South of England

1.7

5.0

7.0

6.0

4.5

4.5

4.5

LettingsHamptons International’s report says the rental market will be characterised by some reduction in demand as tenants switch into ownership now that finance is more available, but a fall in supply too as accidental landlords take the opportunity to sell. While affordability in the rental market has deteriorated over recent years, the market is still comfortably supported by demand in areas where house prices are least affordable as well as demand from skilled migrants and corporate businesses.

Lettings Market Forecasts

2012

2013

2014

2015

2016

2017

2018

England & Wales

1.5

2.0

1.7

2.8

3.0

4.0

4.5

Greater London

2.7

3.0

3.5

4.0

4.0

4.5

5.0

PCL

0

0

1.5

3.0

3.5

4.5

5.0

South of England

0.8

0

1.0

3.0

3.0

4.0

4.5

Source: Hamptons International and Countrywide Lettings Index

House BuildingThe house building industry is also in recovery, says Hamptons International. The supply of new homes will peak in 2015 but the report points to a disconnect between the biggest requirement for new homes in London and the South and the fact that these are precisely the areas in which development land is at a premium and planning permissions are more difficult to secure.

House Building Forecasts

2012

2013

2014

2015

2016

2017

2018

Housing starts,England,000s

79

100

115

118

110

110

110

Note to editors:

Hamptons International’s 2014 Housing Market Forecast Assumptions

The UK economy will continue to recover

Wage growth will be modest for some time

Unemployment is unlikely to fall rapidly

Inflation will stay above its two per cent target for some time

Conditions in the US and Europe continue to improve

Funding for Lending and Help to Buy will remain in place for the planned period (until 2015 and 2017 respectively)

Mansion Tax will not come into force in this forecast period

The Financial Policy Committee and the Prudential Regulation Authority will monitor and restrict risky lending

Hamptons International’s 2014 Housing Market Forecast Downside Risks• Turmoil in the US could destabilise the world economy at a fragile time• Unrest in oil producing countries could cause a spike in oil prices and result in an early hike in interest rates

*House price forecasts are for England and Wales and are based on HMLR indices*Transaction forecasts are for Great Britain and are based on HMLR and Register of Scotland*Housing starts are for England and are based on DCLG